Growth forecast is halved but Budget plans get thumbs up
THE European Commission halved its forecast for Irish economic growth next year but gave a broad welcome to the Budget and approved a fresh loan of €8.5bn from European institutions, the IMF, and Britain, to help tide the country over for the next 18 months.
The commission, which published a report on the Irish economy as part of the IMF/EU bailout, said it now expects the economy to expand 1pc in 2012.
That's almost half the 1.9pc it previously predicted. The economy will probably expand 1.1pc this year, rather more than the 0.6pc originally predicted.
If correct, this would mean that the economy slows next year compared to this year.
Most economists are downgrading their growth forecasts because of the rising likelihood that most of the eurozone will tumble into recession.
The dangers posed by recession are one of the reasons why growth could be even lower, the commission warned.
The report, which follows consultations with the Government and organisations such as the Central Bank, makes recommendations to the country's bailout partners as well as the IMF and the UK which is also giving money to Ireland.
While broadly welcoming of last week's Budget, the report flags that the Government and the commission have failed to reach an agreement over the sale of state assets.
The Government has said repeatedly that it will only privatise state-owned companies if it can realise a good price and does not want to raise more than €2bn.
The commission would like to see up to €5bn raised through disposals. There will be more "substantive" discussions on the matter early next year, the report says.
The report also criticises the Government for failing to give details of the cuts planned in 2014 and 2015.
"Timely announcements of adequate measures is necessary to entrench the recent confidence gains against the background of deteriorated global sentiment," the report says.
Concerns about a possible cash shortage in March (when the State must repay €5.6bn and raise €3.1bn for Anglo Irish) has led the bailout partners to disburse €3bn to the Government earlier than originally planned. The money will now be paid in the first few weeks of the year to ensure that the Government always has around €6bn on hand for emergencies.
The report also noted that the Government had fallen behind on commitments to regulate the financial sector and credit unions.
Legislation is now seen coming in the second quarter of 2012 rather than the first quarter as promised under the memorandum of understanding.
The €8.5bn which will be disbursed in the next few months following the latest report comes on top of €29.6bn which has already been lent to Ireland. Contributions from Sweden and Denmark will follow.